Green Washer

The latest acronym most listed companies use is ESG which stands for environmental, social and governance. Environmental refers to the ecological impact of the business operations. Social refers to the relational aspect with the stakeholders. Governance refers to the compliance management of the business owners. ESG is a framework that guides stakeholders in determining the best method to minimize risks and maximize returns associated with sustainability initiatives. We commend the regulatory organizations led by the Securities Exchange Commission (SEC) for encouraging listed companies to have sustainability initiatives. To support the listed companies in the evaluation and management of non-financial performance of the business organization across the ESG aspects and to enable them to measure and monitor the related contributions towards reaching the sustainability targets, the SEC issued Memorandum Circular 4 or the Sustainability Reporting Guidelines for Listed Companies on 15 February 2019. Since the issuance of the guidelines, the SEC has seen an improvement in the submission of sustainability reports among the listed companies as it increased to 95.41% as of 31 December 2023 from 90.40% as of 31 December 2019. Although most listed companies have embraced the ESG framework as shown by the notable compliance rate, we should remember that everything that shines is not gold. Greenwashing has been a common practice by some listed companies as they use ESG as a marketing platform to promote themselves rather than to serve stakeholders. It is conveying a false impression or deceptive information about products, services and business practices and making the most of the ESG investing movement. The most common forms of greenwashing include undistinguishable product labels, unsure service commitment and unsound business practices that dupe investors and delude consumers searching for ESG-driven business organizations. Some listed companies have engaged in greenwashing through newspaper articles, online commercials and print advertisements promoting their ESG compliance but are not making a holistic approach to sustainability initiatives. To ensure strong adherence to the ESG framework, the SEC is studying the adoption of the International Financial Reporting Standard (IFRS) Sustainability Disclosure Standards developed by the International Sustainability Standards Board to validate whether the ESG data are transparent or accurate. In the absence of international sustainability standards that would make the ESG data measurable and comparable, we should accept it while maintaining a degree of skepticism about its authenticity. We are not sure which of the listed companies are submitting sustainability reports anchored on strong commitment or simple compliance.

Free Float

A company that is interested in becoming a listed company by applying for listing by way of an initial public offering is now required to sell to the public between 20% to 33% of total shares depending on market capitalization. For companies with a market capitalization of more than P1 billion, the minimum public ownership must be 20% of total shares or P250 million worth of shares, whichever is higher. For companies with a market capitalization of between P500 million to P1 billion, the minimum public ownership must be 25% of total shares or P100 million worth of shares, whichever is higher. For companies with a market capitalization of less than P500 million, the minimum public ownership must be 33% of total shares or P50 million worth of shares, whichever is higher. For companies applying for listing by way of introduction and listing by way of backdoor, the minimum public ownership must be 20%. It is worth mentioning that upon and after listing a listed company must maintain a minimum public ownership of at least 20%. The rationale for adjusting the minimum public ownership of listed companies would include but is not limited to increasing market liquidity, decreasing market volatility, restraining market speculation and preventing market manipulation. Although the collaboration of the regulatory organizations such as the Securities Exchange Commission and the Philippine Stock Exchange is commendable for implementing a higher minimum public ownership of listed companies, it does beg the question of why not apply these rules to all listed companies. Based on the guidelines on minimum public ownership of listed companies issued by the regulatory organizations, these requirements are mandated to companies applying for listing by way of an initial public offering, listing by way of introduction and listing by way of backdoor but not to the other companies that have been listed before the issuance of the guidelines. If the regulatory organizations want to institutionalize the best possible corporate governance among their stakeholders then they must ensure that the guidelines are applied to all listed companies without prejudice to the timing of listing. Failure to do so would encourage some listed companies that have been listed before the issuance of the guidelines to remain as shell companies without active business operations or significant assets. Shell companies are not unlawful but they sometimes bend the rules without breaking them by disguising business ownership from the regulatory organizations and evading automatic delisting from the local bourse.